Dollar under pressure as political uncertainty weighs

AnoraMahmudova

The U.S. dollar on Thursday weakened against the Japanese yen and the pound amid heightened uncertainty about the future of the health-care legislation.

U.S. legislators in the House are scheduled to vote on repealing and replacing the Affordable Care Act, known as Obamacare, later on Thursday, but may decide to postpone the vote if not enough Republicans support the bill.

The ICE Dollar Index
DXY, -0.01%
was marginally higher at 99.75, near its lowest level in seven weeks.

Against the yen, the greenback fell to the lowest level in more than four months, trading at ¥110.99 late Thursday in New York, down 0.2% from ¥111.17 late Wednesday in New York.

“We view the weakness of the dollar as the reflection of political uncertainty, with the implication that the administration cannot pass the health-care bill, which will delay other policy changes surrounding tax regulations and spending,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

Esiner said that the longer-term outlook for the dollar is still to go higher, as the monetary policy is likely continue to tighten.

The Federal Reserve raised interest rates last week while policy makers are intent to raise rates at least two more times this year.

The dollar’s reaction to jobless claims and new-home sales was largely muted.

Sales of newly constructed homes powered to the highest pace in seven months in February as firm demand for housing outweighed lean supply and slightly higher mortgage rates.

The euro
EURUSD, -0.0617%
was weaker against the dollar, buying $1.0784 late Thursday in New York from $1.0798 late Wednesday.

The pound rose back above $1.25 to trade around a one-month high on Thursday after a surprisingly strong reading on U.K. retail sales fueled hopes of a more hawkish tone at the Bank of England.

Sterling
GBPUSD, -0.1994%
jumped to an intraday high of $1.2528, up from $1.2484 late Wednesday in New York. It was last trading at $1.2513 late Thursday in New York. The move came after the Office for National Statistics said retail sales rose 1.4% in February on the month, easily beating forecasts of a 0.4% rise.

“Retail sales data was very strong this morning and sterling has rallied once again. It comes hot off the back of the headline inflation earlier in the week, with the hawkish MPC statement and rate vote results still resonating,” said Alex Edwards, currency analyst at OFX, in a note.

“It’s likely to make for an even more aggressive BOE statement next month, with sterling up through $1.25 as a result. This recent combination of market data will likely support GBP through to the end of the week and perhaps into next. $1.26 could well be in sight,” he added.

The pound started to rise last week after BOE member Kristin Forbes took markets by surprise and voted for a rate increase at the bank’s policy-setting meeting. The hawkish view was further supported by consumer price figures out this week, showing U.K. inflation shot above the central bank’s 2% target in February.

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